Will the COVID-19 crisis mean we will be trapped in the lower for longer regime or are we on the road to a rate change? This session examined the proposition that we are in a “lower for longer” environment, explored whether a reflationary environment will prevail, and debated if growth is around the corner. The session also highlighted what these potential scenarios might mean for investors and identify opportunities from an investment perspective. 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Key takeaways
Inflation has become the number one investor worry according to a poll of delegates at FIS Digital 2021 with 51 per cent of respondents naming rising prices above any other risk.
But it might not be long-term. Country by country and demographic drivers are disinflationary, and today’s robust economic activity will tail off and economies will turn as sluggish as 2019.
Other panellists argued inflation could remain uncomfortably high. Even transient factors can take a while to unwind – particularly a labour shortage.
The longer inflation stays high, and the less pre-emptive central banks are in trying to curb it, the greater the risk.
Investors face challenges keeping to strategic asset allocations and navigating the impact of lost diversification between stocks and bonds.
One popular strategy comes via increased allocations to commodities where low inventories has left many commodity markets in backwardation. But looking ahead factors like China prioritising financial stability over growth could quickly change the picture. Moreover, if central banks turn hawkish, it bodes badly for industrial metals.
Elsewhere commentators said taxes will rise and this means deflationary forces could hold back the demand side. Systemic forces will also drive down inflation – taming inflation won’t just be the responsibility of central banks.
Many pension funds’ portfolios are not designed for unanchored inflation. Insurance assets like inflation-linked bonds or commodities are good in the short-term but don’t fit easily in a long-term portfolio.
Central bank credibility has provided an extraordinary backdrop to investment decisions – and any sense that discipline might be eroding could end badly for the portfolio.
What do you consider to be the biggest risk facing your portfolio right now?[vc_line_chart x_values=”” values=”%5B%7B%22title%22%3A%22Geopolitical%20risk%22%2C%22y_values%22%3A%2212%22%2C%22color%22%3A%22blue%22%7D%2C%7B%22title%22%3A%22Volatility%20of%20markets%22%2C%22y_values%22%3A%2222%22%2C%22color%22%3A%22pink%22%7D%2C%7B%22title%22%3A%22Inflation%20%22%2C%22y_values%22%3A%2251%22%2C%22color%22%3A%22mulled-wine%22%2C%22custom_color%22%3A%22%238d6dc4%22%7D%2C%7B%22title%22%3A%22Liquidity%22%2C%22y_values%22%3A%227%22%2C%22color%22%3A%22juicy-pink%22%2C%22custom_color%22%3A%22%236dab3c%22%7D%2C%7B%22title%22%3A%22Climate%20risk%22%2C%22y_values%22%3A%228%22%2C%22color%22%3A%22peacoc%22%2C%22custom_color%22%3A%22%2300c1cf%22%7D%5D”]
The big difference between the vaccine rollouts and the scale of the stimulus measures across the world could result in a K-shaped global economic recovery, with much of the developed world booming but poorer countries continuing to struggle. However the
With hopes of a sharp rebound from the pandemic-induced recession quickly fading, policymakers should pause and take stock of what it will take to achieve a sustained recovery.
The technology already exists to make the due diligence process when selecting and monitoring managers more efficient, less arduous and highly productive.
Insights into private markets and venture may provide a real competitive edge for asset managers in demonstrating to investors an understanding of innovation and disruption and how this affects public market portfolios
Driven by active return, AP4 produced a stellar 9.6 per cent in 2020. But its chief executive, Niklas Ekvall remains cautious about the economic outlook and its impact on the portfolio, especially with regard to inflation.
USS's head of dynamic asset allocation Bruno Serfaty reflects on the inflation risk coming down the track, and suggests ways investors can build alternative liability matching portfolios beyond government bonds.
In this episode Amanda White talks with engagement specialist at Robeco, Peter van der Werf, about the importance of engagement; what good engagement looks like; and what financially material sustainability themes are important right now.
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